The emergence of climate change and environmental protection as public policy issues has created a dynamic new corporate sector, and one that is dominated by London.

London’s Alternative Investment Market has become the destination of choice for international companies seeking to exploit new markets in carbon trading and clean technology.

Ian Simm, chief executive of Impax, an asset management and corporate finance adviser in environmental markets that listed on the junior market in 2001, said: “There’s been an awful lot of activity on Aim in the last 18 months in our sector. I’ve seldom seen such excitement in a particular part of the market.”

Lionel Kambeitz, chairman and chief executive of HTC Purenergy, a Canadian start-up specialising in carbon capture that plans to list on Aim, said: “At the level of investment banking and corporate finance, there’s a keen awareness of the new carbon economy and that awareness has brought an opportunity for finance.”

The growth in areas such as renewable energy, recycling and emissions trading is being driven by increased environmental awareness, coupled with heightened regulation.

Simm said: “When brokers are placing the stock of new environmental companies, they can point to high fossil fuel prices, the emphasis on energy security and increased environmental regulation.” The result is that government, industry, and consumers are investing heavily in environmental technologies.

“Capital expenditure of $100bn (€82bn) in the next five years in these industries is significant, as are growth rates of 15%-20%. It’s hard to ignore that. People are aware of how much more money is being spent,” Simm said.

The UK government has set a target of achieving 15% of the country’s energy from renewable sources by 2015, compared with the present rate of less than 4%, creating a potentially huge market for companies with alternative energy technology. Simm said: “In this particular area, regulation is a boon. People with clean products and services can make money. Smaller companies are moving fast and are innovating.”

Kambeitz cited the UK capital’s familiarity with risk management as a reason for using London. “London is home to the most sophisticated risk management market in the world, namely Lloyd’s. From that background, London has evolved to become the centre of carbon risk management and arbitrage. It is the new-energy capital of the world,” he said.

London is also the financial capital of Europe and home to the largest carbon-trading market, the EU Emissions Trading Scheme. The scheme is the EU’s vehicle for implementing the Kyoto requirement that industrialised companies reduce their emissions of greenhouse gases by 5.2% by 2012, relative to 1990 levels.

Under the scheme, big emitters, such as power generators and utilities, and heavy industry such as cement, oil and gas, and steel plants, have an incentive to reduce emissions and to buy carbon credits from environmentally friendly businesses.

EcoSecurities, a company founded by a Brazilian biologist and led by a former vice-president of structured financial products at Lehman Brothers, is based in New York but listed on Aim at the end of last year. Its business is originating and commercialising carbon credits from the developing world.

A carbon credit is generated when a carbon-neutral project, such as a hydropower plant or agricultural biodigester that prevents methane being leaked into the atmosphere, is developed in accordance with methodologies approved by the United Nations. EcoSecurities teams up with owners of waste streams across the developing world, such as farmers or owners of landfill, to earn and sell credits.

EcoSecurities can generate carbon credits at €3-€5 per tonne, and sell them at the EU’s carbon spot price, currently more than €26 per tonne. Bruce Usher, chief executive of EcoSecurities, said more than 11,000 emitters in Europe were struggling to meet reduction targets and would rely heavily on credits.

“There’s strong demand and constrained supply – it’s a seller’s market. That’s why we decided to float. There’s a land grab in this sector and we are well placed to capitalise on that,” Usher said.

Simm added: “The EU emissions trading scheme further heightened the interest of fund managers. They can see economic value being moved around and therefore understand the impact of clean energy in a way they didn’t before.”

London has also become the financial home for environmental companies because the European fund management industry, dominated by London, is keen to invest in this sector. Climate change is higher up the public policy agenda in Europe than the US, and companies are generally more committed, when judged by their public reporting, to demonstrating their green credentials.

Simm said: “It’s now a mainstream issue for investors. We’re finding fewer specialist socially responsible investors out there – we’re meeting mainstream fund managers and we need to persuade them that this is a market they should be exposed to.”

Fund managers are not alone in paying attention to the new sector. Simm said: “Bigger companies are coming along and saying: these markets are attractive. We’re seeing a lot of smaller companies raising venture capital and larger companies coming along to take them out.”

Last year, GE, the world’s largest manufacturing company, announced a doubling of its investment in cleaner technologies, to $1.5bn a year, in a commitment dubbed “ecomagination”. Impax has 72 companies in its portfolio, and 12 have been taken over in the past four years, three by GE.

Simm sees no reason why the explosive growth of the environment-related corporate sector will not continue. “Concerns about climate change aren’t going away – if anything, they will grow,” he said.